Presentation on theme: "Comparing Merchandising and Manufacturing Activities"— Presentation transcript:
1Comparing Merchandising and Manufacturing Activities Next PageClick HereComparing Merchandising and Manufacturing ActivitiesMerchandisers . . .Buy finished goods.Sell finished goods.Manufacturers . . .Buy raw materials.Produce and sell finished goods.MegaLoMart
2Manufacturing Overhead Next PageClick HereManufacturing CostsDirect MaterialsDirect LaborManufacturing OverheadThe Product
3Example: A radio installed in an automobile Next PageClick HereDirect MaterialsThose materials that become an integral part of the product and that can be conveniently traced directly to it.Example: A radio installed in an automobile
4Example: Wages paid to automobile assembly workers Next PageClick HereDirect LaborThose labor costs that can be easily traced to individual units of product.Example: Wages paid to automobile assembly workers
5Manufacturing Overhead Next PageClick HereManufacturing OverheadManufacturing costs that cannot be traced directly to specific units produced.Examples: Indirect labor and indirect materialsWages paid to employees who are not directly involved in production. Examples: maintenance workers, janitors and security guards.Materials used to support the production process. Examples: lubricants and cleaning supplies used in the automobile assembly plant.
6Materials waiting to be processed. Completed products awaiting sale. Next PageClick HereBalance SheetMerchandiserCurrent Assets:CashReceivablesPrepaid expensesMerchandise inventoryManufacturerCurrent Assets:CashReceivablesPrepaid ExpensesInventoriesRaw MaterialsWork in ProcessFinished GoodsMaterials waiting to be processed.Partially complete products – some material, labor, or overhead has been added.Completed products awaiting sale.
7Next PageClick HereThe Income StatementCost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.
8Manufacturing Cost Flows Next PageClick HereManufacturing Cost FlowsIncome Statement ExpensesBalance Sheet InventoriesCostsMaterial PurchasesRaw MaterialsDirect LaborWork in ProcessManufacturing OverheadCost of Goods SoldFinished GoodsSelling and Administrative ExpensesSelling and AdministrativePeriod Costs
9Product Costs – Raw Materials Next PageClick HereProduct Costs – Raw MaterialsBeginning inventory is the inventory carried over from the prior period.
10Product Costs – Direct Materials Next PageClick HereProduct Costs – Direct MaterialsAs items are removed from raw materials inventory and placed into the production process, they are called direct materials.
11Product Costs – Total Manufacturing Costs Next PageClick HereProduct Costs – Total Manufacturing CostsConversion costs are costs incurred to convert the direct material into a finished product.
12Product Costs – Goods in Process Next PageClick HereProduct Costs – Goods in ProcessAll manufacturing costs incurred during the period are added to the beginning balance of work in process.
13Product Costs – Cost of Goods Manufactured Next PageClick HereProduct Costs – Cost of Goods ManufacturedCosts associated with the goods that are completed during the period are transferred to finished goods inventory.
14Product Costs – Cost of Goods Sold Next PageClick HereProduct Costs – Cost of Goods Sold